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Wednesday, September 24, 2014

What is a Sub Prime or Bad Credit Mortgage?

Sub Prime Mortgages are back (they really never went away). But what is a Sub Prime Mortgage?

It’s a home mortgage loan for borrowers who have a credit issue
giving them a low credit score.
Typically a credit score below 550.
Bad credit sub prime mortgages are easier to qualify, since the lender is focusing
more on the asset value and loan to value rations. They lenders are more flexible in the lending
criteria.

Bad credit mortgage loans have higher interest rates and higher
down payments than regular mortgage loans. Typical rates as of today start at 8% with a
30% down payment.

If mortgage is for an owner occupied home, then the lender will
have to determine if the borrower can afford the payment on the loan. This is called Debt to Income Ratio, or
DTI. The ratios are typically 35/50%.

In the mortgage world, there is a loan for
everyone.

It just depends on down payment and interest
rate.

However there are some items that will stop a deal dead in its
tracks, even for a Bad Credit Mortgage. Typically
the lender will not loan if the borrower has outstanding judgments, IRS Tax Liens,
or is involved in a law suit or criminal charges.

Most people prefer to use a bad credit mortgage loan simply to
get into a home and help rebuild credit.